10.1 Case A: Acquisition of Nova Ltd. – Full Consolidation
Scenario: Orion Ltd. acquires 80% of Nova Ltd. for \$6,000,000. Nova’s identifiable net assets at fair value are \$5,500,000. NCI is measured at fair value.
- Calculate NCI at fair value: 20% × 5,500,000 = \$1,100,000
- Calculate goodwill (full goodwill method):
6,000,000 + 1,100,000 – 5,500,000 = \$1,600,000
-- Consolidation entry at acquisition:
Dr Identifiable net assets 5,500,000
Dr Goodwill 1,600,000
Cr Investment in Nova 6,000,000
Cr Non-controlling interest 1,100,000
Then eliminate Nova’s equity against identifiable net assets:
-- Eliminate subsidiary equity:
Dr Share capital (Nova) 3,000,000
Dr Retained earnings (pre-acq) 1,780,000
Dr Other reserves (if any) 720,000
Cr Identifiable net assets 5,500,000
10.2 Case B: Sale and Leaseback Transaction
Scenario: Entity S sells machinery (carrying amount \$400,000) to Lessor M for \$500,000 and leases it back over 5 years with annual payments of \$120,000. The transfer qualifies as a sale under IFRS 15 and a lease under IFRS 16.
- Derecognise sold asset and recognise gain:
Dr Cash 500,000 Cr Property, plant & equipment 400,000 Cr Gain on sale of PPE 100,000 - Recognise right-of-use asset and lease liability:
Dr Right-of-use asset 500,000 Cr Lease liability 500,000 - Subsequent accounting each year:
- Amortise ROU asset: \$500,000 ÷ 5 yrs = \$100,000 p.a.
- Finance cost on lease liability at implicit rate.
10.3 Case C: Joint Venture Accounting – Equity Method
Scenario: Entity A and Entity B each invest \$600,000 in JV AB for a 50% interest. At year-end, the JV reports profit of \$100,000 and pays dividends of \$40,000.
- Initial recognition of investment:
Dr Investment in JV AB 600,000 Cr Cash 600,000 - Recognise share of profit (50% × 100,000 = \$50,000):
Dr Investment in JV AB 50,000 Cr Share of profit from JV 50,000 - Record receipt of dividends (50% × 40,000 = \$20,000):
Dr Cash 20,000 Cr Investment in JV AB 20,000